Quiz #2 and answers

Econ 122

Quiz #2 Answer Key

True or False?

1. Trade allows a country to consume outside its production possibilities frontier. (TRUE)

2. Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods. (TRUE)

3. The producer who has the smaller opportunity cost of producing a good is said to have an absolute advantage in producing that good. (FALSE: they would have a comparative advantage)

4. As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost. (TRUE)

5. Adam Smith developed the theory of comparative advantage as we know it today. (FALSE: it was David Ricardo